VZCZCXYZ0000
RR RUEHWEB

DE RUEHIN #3989 3330842
ZNR UUUUU ZZH
R 290842Z NOV 06
FM AIT TAIPEI
TO SECSTATE WASHDC 3228

UNCLAS AIT TAIPEI 003989 
 
SIPDIS 
 
INFO USDOC WASHDC 
AMEMBASSY BANGKOK 
AMEMBASSY BEIJING 
AMEMBASSY SEOUL 
AMEMBASSY SINGAPORE 
AMEMBASSY TOKYO 
AMEMBASSY MANILA 
AMEMBASSY JAKARTA 
AMEMBASSY KUALA LUMPUR 
AMEMBASSY HANOI 
AMEMBASSY CANBERRA 
AMEMBASSY WELLINGTON 
AMCONSUL HONG KONG 
AMCONSUL SHANGHAI 
AMCONSUL GUANGZHOU 
DEPT OF TREASURY WASHDC 
 
SIPDIS, SENSITIVE BUT UNCLASSIFIED 
 
STATE PLEASE PASS AIT/W AND USTR 
STATE FOR EAP/TC, EAP/EP 
USTR FOR ALTBACH 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  NT Dollar Loans to Foreign Borrowers 
 
Ref: Taipei 2695 
 
SUMMARY 
------- 
 
¶1.  (U) Taiwan's monetary authorities in November started permitting 
banking institutions to lend NT Dollars (NTD) to foreign borrowers 
in Taiwan which may be used to finance direct investment, securities 
trading, and real estate purchases.  The new measure relaxes the 
conditions for using NTD loans as direct foreign investment 
(reported reftel) and is designed to reduce Taiwan's excess 
liquidity.  End summary. 
 
Industry Regulations 
-------------------- 
 
¶2.  (U) On November 13, Taiwan's Central Bank of China (CBC) and the 
Financial Supervisory Commission (FSC) issued a joint statement that 
banking institutions will be permitted to lend NTD to foreign 
borrowers without residence in Taiwan after the Bankers Association 
adopts a set of voluntary regulations, which it did late November. 
 
Relaxation 
---------- 
 
¶3.  (U) According to the CBC, qualified foreign borrowers may be 
foreign individuals without permanent residence or foreign 
corporations without registration in Taiwan.  NTD loans to these 
foreign borrowers may be used to finance such activities as 
securities trading, real estate purchases, direct investment 
projects, and acquisition and mergers.  These NTD loans must be 
secured with collateral, except for intra-day loans which are used 
to pay for stocks purchased earlier the same day. 
 
To Reduce Excess Liquidity 
-------------------------- 
 
¶4.  (U) A CBC official told AIT/T that the new measure is designed 
to reduce excess liquidity which has kept yield rates on 10-year 
public bonds below 2%, the second lowest in the world after only 
Japan.  The CBC official said low interest rates in Taiwan should 
attract foreign investors to use NTD loans to do merger and 
acquisitions (M&A) here.  He further noted low interest will also 
attract hedge funds to borrow NTD loans to finance securities 
transactions.  The CBC estimated that NTD loans required annually by 
hedge funds and foreign securities firms may reach NT$1.32 trillion 
(US$40 billion), equivalent to 90% of total postal savings currently 
placed on deposit with the CBC. 
 
COMMENT 
------- 
 
¶5.  (SBU) It is unsound to expect hedge funds to resolve domestic 
excess liquidity problems.  The November 13 relaxation measure 
indicates the CBC's desperation to address excess liquidity issues 
which have remained in spite of the July 2006 measure permitting 
secured NTD loans to serve as foreign direct investment in Taiwan 
(reftel).  The CBC needs to issue additional negotiable certificates 
of deposit to absorb excess liquidity from the banking system.  The 
best solution would be a substantial expansion of private 
consumption and private investment. 
 
Young